Global Sourcing

Global SourcingDomestic Sourcing

Same Language Same Cultural/Ethical Expectations Same Legal System Same Banking System Same Transportation No Customs, Tariffs

Global SourcingWhy Look for Global Sources?

Lower Total Cost (Landed) Access to Markets (Countertrade) Access to Raw Materials Access to Technologies Other Reasons

Quality Competition

Global Sourcing Finding Global Suppliers

Directories Trading Companies Embassies/Consulates Trade Shows

Countertrade Logistics Issues

INCOTERMS Other Logistics Costs

Global Sourcing Problems With Global Sourcing

Good Specifications Cultural Issues Language Difficulties Long Lead Times Paperwork Payment Issues Political Risk Currency Risk Security Issues Sustainability

Global Sourcing Methods

Intermediaries Foreign Subsidiaries International Purchasing Offices Direct Purchases

Inspection Services Customs Brokers and Freight Forwarders

Global Sourcing: Communication

Understanding the True Barriers Speaking Reading and Writing Slang and Colloquialisms Two Word Verbs

Vocabulary Conversational Business Technical

Global Sourcing: Communication

Translators Local, At Destination Types

Translating Written MaterialsBusiness Cards and Titles

Global Sourcing: Payment

Domestic Payment Payment Up Front (Avoid) COD On Account

International Payment Payment Up Front (Avoid) Against Documents Letters of Credit On Account

International NegotiationAge, GenderStatus, AuthorityFormalityNumbers and Team CompositionProfessionalism “Yes” and “No”

International NegotiationSilenceSubtletiesDeadlinesCultural RespectOn Being Alone

Make/Buy and Outsourcing

Make/BuyProducts We Never MakeProducts We Always Make In Between Products: Make/Buy

Make/Buy Industry Standards, Proprietary Products and

Make/Buy Procurement from Suppliers Procurement by Manufacture Fluid Decision Revisit at Regular Intervals

As Economic Conditions Change As Internal Conditions Change

Always Maintain Internal Capability

Reasons to Make Quantities Too Small Quality Too Critical Timing Too Critical Trade Secrets (for a time) Cheaper Keep Crew Busy Avoid Sole Source (perhaps) Union Shop Unreliable Supplier

Reasons to BuyQuantities Too LargeSupplier Quality AcceptableHave Sufficient Lead TimeLack of Necessary CompetenciesLack of CapacityCheaperReciprocity

Vertical IntegrationCost and Responsiveness Insure Performance

Scheduling Control Boeing

OutsourcingStrategic DecisionActivity is Not Core CompetencyWill, In Future Completely Depend on

SuppliersWill No Longer Maintain Internal

CapabilityManagement of Outsourced Activities

OutsourcingOur Core CompetenciesSuppliers’ Core CompetenciesDependence on Suppliers

Strategic Vulnerability Technology Transfer Source from Competitors’ Suppliers

Supplier Exploitation Price Creep Service

OutsourcingFirms Rethinking Outsourcing

Rising Wage Rates Rising Transportation Costs Currency Exchange Rates Long Lead Times

Recent Survey (Global Retail Goods Firms): 50% of firms in survey are considering

moving out of China 26% actually doing it

Supplier Selection

Supplier SelectionTypes of Purchases

Industry Standard Custom Assemble from Common Parts Custom Manufacture from Common

Materials Custom from New Technologies

Cos t s

Correct Transaction Cost

Time

Total trans. cost

Admin cost

Material cost

Logistical cost

Transaction origin

Transaction conclusion

Typical Measured CostsMaterial CostService CostAdministrative Cost

PO Cost Receiving Accounts Payable

Freight

Costs Typically Not Measured

Back OrdersLate DeliveriesDefective Material CostsCosts of Rejected GoodsProd’n Stop CostsProject Delay CostsAir Freight

Cost of Warranty FailuresExtra Inventory CostServices Incorrectly Performed Invoice ErrorsHighly Variable Lead TimesFreight Damage

Cos t s

Time

Total trans. cost

Transaction origin

Actual conclusion

Expected transaction

Cost overrun

Time delay

Specifica

tion

questions f

rom

supplier

Raw materia

l

delays

Freight d

amage

Invoice

errors

Who Pays?

It All Depends On What You Negotiate

High PatentM Prop TechARK E T Ind Std Commodity Low

Low High INTERNAL

Volume, Importance Volume, Pervasive

Criticality Grid

Criticality Grid: High Market

Sole Source High Market Concentration High Price Volatility High Supply Industry Capacity Utilization Patented Product Proprietary Technology

Criticality Grid: Low Market

Industry Standard Items (Some Differentiation)

Commodities Non-proprietary Indirect Supply Items Many Substitutes

Criticality Grid: Low Internal

Little Use Low Volumes Unimportant Technology

Criticality Grid: High Internal

High Volume High Dollar Expenditure High Price Sensitivity Pervasive Key Operating Characteristic

Criticality Grid: Managerial Objectives

High Patent Look Ahead Strategic AlliancesM Prop TechARK E Market Driven Market Driven T Min Admin Cost Supply Continuity Ind Std Automate Operational Alliance Commodity Low Low High

INTERNAL Volume, Importance Volume, Pervasive

Criticality Grid: Contract Applications

HighPatent Look Ahead Evergreen Agreements

M Prop Tech Strategic AlliancesARK E Petty Cash Multi-Year T Purchase Cards Systems Contracts Ind Std Blanket Orders Operational Alliances Commodity Low Low High

INTERNAL Volume, Importance Volume, Pervasive

Review

ReviewLegal IssuesEthicsSupply StrategiesCommodity StrategiesSupplier StrategiesSpecificationsSupplier Selection

Questions, Comments, Observations, Conclusions,

Arguments?